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It is clear that the widespread producer cutbacks that began last fall to combat falling prices have not yet translated into reduced natural gas supplies as production in the Lower 48 states was 63.01 Bcf/d in January, down 0.29 Bcf/d, or half of a percent from December, but up 2.7 Bcf/d, or 4.5% compared with January 2008, according to Energy Information Administration (EIA) estimates released Thursday.

Federal offshore Gulf of Mexico (GOM) production, hit hard by hurricanes Ike and Gustav last September, was 6.36 Bcf/d in January, up 9.3% since December but still down 1.54 Bcf/d (19.5%) from January 2007. In September offshore GOM production tumbled to just 2.22 Bcf/d, EIA said.

Producers -- faced with steeply lower natural gas prices -- began laying down rigs and reducing capital budgets last fall. Chesapeake Energy Corp. CEO Aubrey McClendon said last November that falling prices and the economic recession would lead to the reduction of 300-500 active rigs during 2009 (see Daily GPI, Nov. 3, 2008). The fact that production levels are actually up versus January 2008 levels does not come as much of a shock as it is expected to take some time to see the trickle-down results of the reduced activity.

Barclays analysts said earlier this week that with current rig counts, sequential declines in production, if not already under way, should occur in the "very near future." Assuming the rig count finishes 2009 at 700, which would require another 150 or so rigs to fall, "domestic production could be down as much as 3.8 Bcf/d year/year by December 2009...," they said (see Daily GPI, April 2).

After front-month natural gas futures prices peaked at $13.694/MMBtu last summer, they ranged from $4.359 to $6.240/MMBtu during the month of January 2009 and are now trading at $3.782/MMBtu as of Thursday's close. During January 2008 front-month natural gas traded between $7.283 and $8.481/MMBtu.

EIA data showed that production in January was up marginally in Wyoming at 7.04 Bcf/d, compared with 6.99 Bcf/d in December and 6.49 Bcf/d in the same period last year. At the same time, production slipped in Louisiana (3.79 Bcf/d, down 2.3% from December), New Mexico (3.99 Bcf/d, down .7%), Oklahoma (5.19 Bcf/d, down 2.6%) and Texas (22.37 Bcf/d, down 1.8%).

EIA also said total consumption in January was 2,702 Bcf, up from 2,389 Bcf in December but down 22 Bcf compared with January 2008. Increases in two sectors -- commercial (512 Bcf, up 8.7% compared with January 2008) and residential (940 Bcf, up 6.7%) -- were more than offset by declines in two others: industrial consumption fell 12.3% compared with January 2008 and consumption for electric power slipped 8% to 485 Bcf.

On Tuesday the EIA raised its projection for domestic natural gas production and demand in the coming decades, citing the continued rapid growth in gas shale development and demand for gas by power generators (see Daily GPI, April 1). The Department of Energy predicts that domestic gas production will increase 22% by 4.3 Tcf/year between 2007 and 2030, while net imports will fall by 3.1 Tcf/year (22%). The EIA sees natural gas demand rising by 0.2% annually during the projection period.

In a report issued last month EIA said it expected total U.S. marketed natural gas production to remain flat at 58.61 Bcf/d this year and then fall by 0.8% to 58.13 Bcf/d in 2010 (see Daily GPI, March 11). Total gas demand this year is expected to decline as well, by 1.3% to 62.64 Bcf/d from 63.49 Bcf/d in 2008, and then rise by a modest 0.4% in 2010, according to the EIA.

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